Apple led conspiracy to raise prices of e-books, federal judge rules

By Alana Semuels
Los Angeles Times

Published: July 10, 2013;Last modified: July 10, 2013 03:06PM

NEW YORK - Apple Inc. conspired to raise the prices of e-books, a judge ruled Wednesday after a trial in which the Department of Justice accused the technology giant of aggressively pressuring publishers to raise prices and weaken Amazon.com Inc.

More than two weeks after closing arguments, U.S. District Judge Denise Cote ruled that Apple is liable for civil antitrust violations.

“The plaintiffs have shown that Apple conspired to raise the retail price of e-books and that they are entitled to injunctive relief. A trial on damages will follow,” Cote wrote in her opinion.

Five publishers accused of conspiring with Apple already settled with the government in the case. They are: Penguin, HarperCollins, Simon & Schuster, Macmillan and Hachette Book Group.

Apple said it would appeal the ruling, the Associated Press reported.

In a trial that lasted three weeks, federal prosecutor Mark Ryan argued that when it entered the e-book market in April 2010, Apple offered publishers a way to fight back against Amazon.com by raising the prices of e-books. Prices went up shortly thereafter, and Apple negotiated 30 percent of the profits.

The government showed that Apple executive Eddy Cue was in contact via email and phone with representatives of the five publishers who ultimately signed agreements with the company, calls that led the publishers to switch how they distributed and priced their books.

Apple argued that the phone calls were benign negotiations and that it did not conspire with anyone. It said it was Amazon, which sells the majority of e-books, that has a monopoly that was hurting consumers. Apple said it was going to trial, rather than settling, because it did nothing wrong.

Assistant U.S. Attorney General Bill Baer, who is in charge of the Justice Department’s antitrust division, called the ruling “a victory for millions of consumers who choose to read books electronically.”

“Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so,” he said. “This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”

In her ruling, Cote wrote that there is no doubt that publishers conspired to raise the prices of their e-books. They were afraid, she writes, that Amazon’s $9.99 price point for bestsellers would completely upset their business model. But Apple was the ringleader - publishers had tried to get Amazon to raise prices in 2009 and 2008, and failed by themselves.

“Apple was a knowing and active member of that conspiracy. Apple not only willingly joined the conspiracy, but also forcefully facilitated it,” she writes.

Cote cites admissions by former Apple head Steve Jobs to his biographer and to others as evidence that the conspiracy was planned.

This is one of the biggest antitrust cases tried by the Justice Department in the past decade, and Apple has argued that a ruling against it would set a dangerous precedent for tech firms trying to strike content deals. But Cote addressed that fear in her ruling, emphasizing that it pertains only to the details in Apple’s case, and not to other companies.

“While a court must take seriously a prediction that its decision will harm our nation’s economy, particularly when made by skilled counsel on behalf of an esteemed company, it is difficult to see how competition will be stifled by the ruling in this opinion. This opinion’s findings arise from the specific events that unfolded in the trade e-book market as 2009 became 2010. It does not seek to paint with a broader brush.”